Bangladesh

In the past, Bangladeshi courts have come to conflicting decisions in respect of the scope of their powers over arbitration seated outside Bangladesh. The controversy appears to have stemmed from the meaning and application of section 3 of Bangladesh’s Arbitration Act 2001 (the AA 2001), which deals with the scope of the Act.1 In the HRC Shipping Ltd. (HRC)2 case, the High Court of Bangladesh stayed a domestic suit in favour of arbitration proceedings conducted outside Bangladesh, while in the STX Corporation Ltd. (STX)3 case, the High Court of Bangladesh refused to provide an interim remedy when the arbitration proceedings were seated abroad.

These decisions caused confusion for the international business community, who are primarily the users of the arbitral process, as they were left without an opportunity to successfully invoke the Bangladeshi courts in respect of arbitration conducted outside Bangladesh. The effect of this has been most prominent in relation to interim remedies, where the Bangladeshi courts have been unable to grant any relief to arbitration users, even to protect or support the foreign arbitral process.

The most recent decision of the Bangladesh High Court, the Egyptian Fertilizer Trading Limited (Egyptian Fertilizer)4 case, seems to follow the approach of the STX case in not granting interim relief to arbitration seated outside of Bangladesh and reflects a tendency on the part of the Bangladeshi courts to interpret section 3 of the AA 2001 restrictively.

HRC Shipping Ltd

The HRC case arose out a dispute in relation to the shipment of goods under a charter agreement. Under the relevant agreement, HRC shipped 53 containers to Sri Lanka from Bangladesh. However, much of the said cargo was dropped into the sea and washed away when the ship was hit by a tsunami, while berthing at its destination port. HRC submitted that the loss was not only due to the tsunami but also due to the negligence of the ship’s crew. As a result, HRC claimed compensation and damages through the Bangladeshi courts, by instituting an suit. However, since the charter agreement contained an arbitration clause, the Defendants Nos. 5 and 6 commenced arbitral proceedings in London and applied for the suit to be stayed under section 10 of the AA 20015.

The issue before the Bangladeshi High Court in the suit was whether it should stay the local proceedings in favour of the arbitration in London. As a preambular statement, the High Court noted that the AA 2001 was largely based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (the Model Law) and that the harmonisation and flexibility fostered by the Model Law was also enshrined in the AA 2001.6

Bearing in mind that the AA 2001 avowedly sought ‘to establish a uniform legal framework for the fair and efficient settlement of disputes’7through international commercial arbitration, the court in the HRC case ruled that section 3(1) had to be interpreted inclusively. It explained as follows:

It is evident that Section 3(1) provides that 2001 Act would apply where the place of arbitration is in Bangladesh. It does not state that it would not apply where the place of arbitration is not in Bangladesh. Neither does it state that the 2001 Act would ‘only’ apply if the place of arbitration is Bangladesh.8

In contrast, the court noted that the UNCITRAL Model Law, through articles 1(2) and 8, has an exclusive definition as it provides that proceedings will ‘only’ be stayed if it is in the territory of a state. The High Court interpreted this omission to be an indication that the Bangladesh Parliament did not intend to restrict the application of the AA 2001 only to arbitration proceedings taking place in Bangladesh.

In the HRC case, the High Court commented on the importance of this interpretation in relation to interim remedies. It held that, if such an interpretation was not given, it would inhibit applications for interim relief in Bangladesh, even if the properties and assets of the parties may be in Bangladesh. This line of reasoning rested upon the Indian decision of Olex Focas v Skoda Export,9 where it was held that the courts have the power to grant interim relief for arbitration seated abroad as:

There is always a time-lag between pronouncement of the award and its enforcement. If during that interregnum period, the property/funds in question are not saved, preserved or protected, then in some cases the award itself may become only a paper award or decree.10

In relation to arguments against the application to stay the suit, the High Court observed that if such a stay was not possible:

[…]then the provision for enforcement of foreign arbitral award will become redundant as prior to completion of the foreign proceedings, one of the party is free to obtain an order injuncting the foreign arbitration proceedings and as such there would not be any foreign arbitral award to enforce.11

In light of the above reasoning, the court in the HRC case stayed the suit in favour of the arbitration seated outside Bangladesh. It is clear from the reasoning that the court in the HRC case took a more purposive interpretation of section 3 of the AA 2001, bearing in mind that the AA 2001 was modelled largely on the UNCITRAL Model Law and acknowledging that such an interpretation was necessary in order to make interim remedies available to aggrieved parties arbitrating their disputes outside Bangladesh.

Despite this progressive approach, the court in the STX case and Egyptian Fertilizer case came to the exact opposite decision on the very issue of providing interim remedies to parties arbitrating their disputes outside Bangladesh.

STX Corporation Ltd

The STX case arose out of a supply contract between STX Corporation Ltd, a foreign company, and Meghna Group of Industries Limited, a company incorporated under the laws of Bangladesh. The contract contained an arbitration agreement under which any dispute in relation to the contract was to be resolved through arbitration in Singapore. Disputes arose under the contract and arbitration was commenced in Singapore.

While the arbitration proceedings were pending, STX filed for an interim order in the Bangladeshi High Court against some of the respondents under section 7A of the AA 200112 to restrain those respondents from transferring or selling off their assets, so as to prevent them from escaping from their obligations under the forthcoming arbitral award.

The main issue for the High Court was whether interim remedies could be provided in cases of foreign arbitration, seated outside Bangladesh, under the AA 2001.The High Court began its judgment with a plain reading of section 3 of the AA 2001 and held that the legislature intended for the AA 2001 to apply only when the arbitration proceeding is in Bangladesh. The High Court held:

From a combined reading of Section 2(ga) [2(c)], 2(ta) [2(k)] and Section 3 of the Act, it is apparent that the intention of the legislature is that the scope of the Act of 2001 is limited within the territory of Bangladesh, except that there is a scope to enforce an award passed in a foreign arbitration, pursuant to Section 3(2) read with Sections 45, 46 and 47 of the said Act of 2001.13

In relation to the interpretation of statutes, the court held that the literal construction of a statute is the golden rule of construction and that when words in a statute are clear and unambiguous, they should be construed according to their tenor and meaning, as it most clearly reflects the intention of the legislature. The High Court further explained that, while interim measures for foreign arbitration were provided for in other jurisdictions, until and unless the Parliament enacts such a provision explicitly in a statute, such measures cannot be granted in Bangladesh.

The High Court was persuaded by the authorities cited by the respondents and found that the law as in sections 3(1) and 3(4) of the Act is limited in application as to the arbitration being held in Bangladesh and that the High Court could not refer the parties to arbitration under section 10 of AA 2001, as the proceedings were being conducted outside Bangladesh. The High Court held that since the Appellate Division had categorically ruled on this issue, there was no further scope for this Court to depart from their findings in light of the binding precedent rule enshrined in Article 111 of the Constitution of the People’s Republic of Bangladesh.14 The High Court also considered the HRC and the Bhatia cases but showed due deference to the decisions of the Appellate Division.

The narrow construction of the scope of AA 2001 has been adopted in several cases succeeding the STX case. This is evident in the Egyptian Fertilizer case, decided on 10 June 2014, and will be a cause for serious concern among the international business community and lawyers that seek remedies from Bangladeshi courts to support the arbitral process conducted abroad.

Egyptian Fertilizer Trading Ltd

The Egyptian Fertilizer case arose from a dispute over the performance of a sales contract for fertiliser. The applicant, Egyptian Fertilizer Trading Ltd (Egyptian Fertilizer) is a limited company incorporated under the laws of the United Arab Emirates. On 10 September 2009, it entered into a contract with the respondent, East West Property Development (Private) Ltd (East West), a limited company incorporated under the laws of Bangladesh, for the sale of 35,000 tonnes of granular urea. Under the terms of the contract, East West agreed to confirm a letter of credit in favour of Egyptian Fertilizer five business days before shipment of the fertiliser. In the event of a dispute, the parties agreed to refer the matter for arbitration before the International Court of Arbitration at the International Chamber of Commerce (ICC) in London.

However, after an initial phase of cooperation and after Egyptian Fertilizer booked a large sum of urea, East West began to delay performance of its contractual obligation to open a line of credit. After the deadline for performing the contract passed, Egyptian Fertilizer notified East West of its intention to pursue legal action under the terms of the contract.

Subsequently, on 5 January 2010, Egyptian Fertilizer filed a request for arbitration before the ICC and three days later, the ICC informed East West that such proceedings had been initiated. Immediately thereafter, East West filed a title suit15 in a district court in Bangladesh praying for the contract to be declared ‘illegal, void and having no binding effect’ and for a permanent injunction to be placed on Egyptian Fertilizer from pursuing any proceedings. Moreover, pending settlement of the suit, East West applied for an interim injunction restraining the petitioner from pursuing the arbitration abroad. This injunction was granted by the district court on 28 January 2010 and Egyptian Fertilizer’s application for the suit to be stayed in favour of arbitration was rejected on 1 June 2010.

Egyptian Fertilizer subsequently petitioned the High Court to provide interim relief, on the basis that sections 7 and 10 of AA 2001 granted the court such power, regardless of the chosen seat of arbitration. They submitted that restrictively interpreting AA 2001 would frustrate the intent of the Bangladeshi legislature and violate the country’s international treaty obligations under the UNCITRAL Model Law and the United Nations Conference on International Commercial Arbitration.16In particular, it was argued that the legislature intended for the subject matter of the arbitration to be preserved and protected. Furthermore, counsel for Egyptian Fertilizer submitted that the lower court did not have jurisdiction over the dispute as the ICC had assumed jurisdiction before the suit was filed and that the suit itself was vexatious and infringed the arbitration agreement in the contract. Notably, Egyptian Fertilizer prayed that an injunction be passed on East West from pursuing the suit until the completion of the arbitration proceedings and pronouncement of an award.17

East West submitted that the High Court did not have jurisdiction over the instant proceedings, in light of the proceedings before the lower courts. They referred to a decision of the Appellate Division of the Supreme Court of Bangladesh, Managing Director, Rupali Bank Limited and others v Tafazal Hossain and others,18 which established that if a court does not have jurisdiction over a matter, it should not go into the merits of the said matter. East West averred that an application under section 7A of the AA 2001 was not maintainable as the place of arbitration was outside Bangladesh. In its view, the only provisions of AA 2001 that are applicable when arbitral proceedings are seated outside Bangladesh were sections 45, 46 and 47, which concern the recognition and enforcement of foreign arbitral awards. East West also brought to the High Court’s attention that an award was delivered by the ICC on 30 June 2012, pursuant to which Egyptian Fertilizer had filed a money decree execution case for the recovery of the value of the fertiliser and sought to attach East West’s property to secure the same. East West noted that Egyptian Fertilizer had failed to notify the High Court of these developments. They contended that the application could no longer be maintained as its core purpose of restraining domestic litigation in favour of arbitration had evaporated.19

On hearing the parties’ submissions, the High Court rejected the application on the basis that it was not maintainable. The High Court had three reasons for arriving at such a decision. Firstly, it held that while exercising its special statutory jurisdiction under section 7A of the AA 2001, the High Court did ‘not act as a court of appeal or revision against any order passed by a court or judicial authority in any suit’20 and in such capacity it did not have constitutional jurisdiction over the lower court. The High Court averred that the proper course of action in such circumstances would have been to file a revisional application before a superior court against the order or orders of the district court under section 115 of the Code of Civil Procedure 1908 (Bangladesh).21 The court added that a host of recent arbitration applications had been rejected on the same grounds.22 Secondly, the court held that pursuant to a literal interpretation of section 3(1) of the AA 2001, applications for interim relief from the High Court under sections 7, 7A and 10 of AA 2001 were not maintainable for arbitration proceedings seated outside Bangladesh. The court interpreted the scope of the Act to extend ‘only’23 to arbitrations seated in Bangladesh. While sections 45 to 47 of the AA 2001 were specifically made applicable under section 3(2), all other sections of the AA 2001 were omitted.24Thirdly, the High Court was of the view that following the pronouncement of the arbitration award by the ICC, the substance of the application had fallen away. There was no longer any need for an injunction and further prolongation of the matter was an abuse of process of the High Court.25

On the face of the judgment, it is unclear whether counsel for Egyptian Fertilizer referred to HRC but it is apparent that the High Court in the instant case was not moved by the same considerations as in the earlier cases. Unlike the HRC case, the High Court in Egyptian Fertilizer did not inclusively interpret section 3, in line with legislative intent and the UNCITRAL Model Law. Such an interpretation would have facilitated the dual public policy objectives of encouraging commerce and peacefully resolving disputes. Moreover, it is clear that a literal interpretation of the AA 2001 is also out of line with the intention of the Bangladeshi Parliament, when it specifically amended the AA 2001 in 2004 to incorporate a section on interim relief. The Bangladesh Law Commission, which formulated this amendment stated:

The arbitral tribunal, (after it is constituted), is empowered to take interim measures during the arbitral proceedings. The absence of a provision to take such measures before constitution of the arbitral tribunal and after making of an arbitral award may provide an unscrupulous party an opportunity to defeat the award that may be made against it [...] We feel that a provision empowering the Court to take interim measures should be included in the [Arbitration Act, 2001] in order to prevent an unscrupulous party’s attempt to defeat enforcement of an award.26

The High Court remarked that Egyptian Fertilizer should have submitted a revision petition before a competent court against the order or orders of the district court but the anti-arbitration stance demonstrated by the lower court from the commencement of proceedings renders it unlikely that the relief sought would have been available through such an avenue. It is in such circumstances, given the substantial sums involved, that the assistance of the High Court becomes all the more necessary.

Though Egyptian Fertilizer successfully secured an arbitral award in its favour, it now faces an uphill task of having that award recognised and enforced in Bangladesh.

Conclusion

The importance of interim remedies cannot be understated. The purpose of such remedies is generally to uphold and support the arbitral process and prevent any steps from being taken by the losing party which may cause irreparable harm to the process by making the enforcement of the award impossible.

While arbitral tribunals can order interim relief, it is an accepted fact that there may be a number of situations where only national courts can effectively address the potential harm to the arbitral process. For example, effective authority may be required from a national court within whose jurisdiction the party against whom the relief is sought is resident. As Lew explains:

Due to the standing organisation of state courts, and the direct enforceability of court ordered interim measures, they are in general quicker and more effective than measures ordered by tribunals which in some cases may have to be declared enforceable by state courts.27

It is my view that the construction of the AA 2001 in the STX and Egyptian Fertilizer cases is regressive in terms of the development of arbitration laws in Bangladesh, as it leaves open the possibility that the innocent party, even after undertaking expensive arbitration proceedings in good faith, is left with little more than a paper award. While such a development is in line with the Indian Supreme Court’s decision in Bharat Aluminium Co28 that Indian courts are unable to interfere or issue any interim orders in respect of arbitration seated outside India, to allow such a result is manifestly against the ethos and spirit of the UNCITRAL Model Law and the New York Convention, to which Bangladesh is a party.

Unfortunately, it now seems that, unless the Bangladeshi Parliament amends the AA 2001 to expressly include a provision that states that the Bangladeshi courts have the power to issue interim remedies in cases of foreign-seated arbitrations, the High Court will not purposively read the Act or exercise their inherent powers to grant such relief. It is feared that this might, in turn, dilute the reputation that Bangladesh is trying to develop as an arbitration friendly jurisdiction. This may not be healthy for a developing country which is actively trying to attract foreign investment and international trade.

In relation to this particular interim remedy issue, it is felt that Bangladesh could take valuable lessons from a developed arbitral jurisdiction like Singapore. In Multi-Code Electronics Industries v Toh Chun Toh and Others,29 the Singapore High Court took a less restrictive approach on this issue, deciding that it could, under its general statutory power, grant injunctions in support of foreign-seated arbitral proceedings. To avoid future confusion, Singapore’s International Arbitration Act (IAA) was amended in line with the revisions made to the Model Law in 2006. As part of the revisions, the original article 17 of the Model Law was replaced by a new chapter on interim measures. This contains a new article 17J, which provides that:

A court shall have the same power of issuing an interim measure in relation to arbitration proceedings irrespective of whether their place is in the territory of the enacting State, as it has in relation to proceedings in court.

The intention of this new provision of the UNCITRAL Model Law was to clarify beyond doubt the powers of a competent court to grant interim measures. In line with this, Singapore’s IAA was amended on 1 January 2010 to include a new section 12A on court-ordered measures. The new section 12A(1) drew on article 17J of the Revised Model Law and clarified that the court’s powers to grant interim measures are not restricted to Singapore-seated arbitrations.

The author would like to thank Morshed Mannan, a research assistant at Sattar&Co, for his assistance with this chapter.

Notes

  1. Section 3 of the AA 2001 states:
    Scope—(1) This Act shall apply where the place of Arbitration is in Bangladesh; (2) Notwithstanding anything contained in sub-section (1) of this section, the provisions of ss 45, 46 and 47 shall also apply to the arbitration if the place of that arbitration is outside Bangladesh; (3) This Act shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration; (4) Where any arbitration agreement is entered into before or after the commencement of this Act, the provisions thereof shall apply to the arbitration proceedings in Bangladesh relating to the dispute arising out of that agreement.
  2. HRC Shipping Ltd v MV X-Press Manaslu and Others [unreported]. This case has been recently reported in 1 LCLR [2012], Vol.2, pp.207–22.
  3. STX Corporation Ltd v Meghna Group of Industries Limited and others, Arbitration Application No.16 of 2009 [unreported]. This case has been recently reported in 1 LCLR [2012] Vol.2, pp.159–178.
  4. Egyptian Fertilizer Trading Limited v. East West Property Development (Private) Limited, Arbitration Application No. 11 of 2010 [unreported].
  5. Section 10 of the AA 2001 states:
     10. Arbitrability of the dispute—(1) Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred to arbitration, any party to such legal proceedings may, at any time before filing a written statement, apply to the Court before which the proceedings are pending to refer the matter to arbitration. (2) Thereupon, the Court shall, if it is satisfied that an arbitration agreement exists, refer the parties to arbitration and stay the proceedings, unless the Court finds that the arbitration agreement is void, inoperative or is incapable of determination by arbitration.
  6. HRC judgment, paragraph 28, referring to M/s Strains Construction Company v Government of Bangladesh represented by Chief Engineer, Roads and Highways Departments 22 BLD (HCD) 236.
  7. HRC judgment, para.27.
  8. HRC judgment, para.32.
  9. Olex Focas Pvt. Ltd v Skoda Export Co. Ltd. 2000 AIR (Del) 171.
  10. HRC judgment, paragraph 40.
  11. HRC judgment, paragraph 46.
  12. Section 7A of the AA states:
     7A. Powers of court and High Court Division to make interim orders: (1) Notwithstanding anything contained in Section 7, unless the parties agree otherwise, upon prayer of either parties, before or during continuance of the proceedings or until enforcement of the award under section 44 or 45 in the case of international commercial arbitration the High Court Division and in the case of other arbitrations the court may pass order in the following matters: … (c) To restrain any party to transfer certain property or pass injunction on transfer of such property which is intended to create impediment on the way of enforcement of award.
  13. STX judgment, paragraph 22.
  14. Article 111 states: ‘The law declared by the Appellate Division shall be binding on the High Court Division and the law declared by either division of the Supreme Court shall be binding on all courts subordinate to it.’
  15. Title Suit No. 51 of 2010 in the court of Assistant Judge, Second Court, Dhaka
  16. Egyptian Fertilizer case, paragraph 7.
  17. Prayer quoted in Egyptian Fertilizer case, paragraph 3.
  18. 44 DLR (AD) 260
  19. Egyptian Fertilizer case, paragraph 8.
  20. Egyptian Fertilizer case, paragraph 4.
  21. Section 115 states:
     115(1). The High Court Division may, on the application of any party aggrieved, call for the record of any suit or proceedings, in which a decree or an order has been passed by a Court of District Judge or Additional District Judge, or a decree has been passed by a Court of Joint District Judge, Senior Assistant Judge or Assistant Judge, from which no appeal lies; and if such Court appears to have committed any error of law resulting in an error in such decree or order occasioning failure of justice, the High Court Division may, revise such decree or order and, make such order in the suit or proceedings, as it thinks fit. (2) The Court of District Judge may, on the application of any party aggrieved, call for the record of any suit or proceeding, in which an order has been passed by a Court of Joint District Judge, Senior Assistant Judge or Assistant Judge, from which no appeals lies; and if such Court appears to have committed any error of law resulting in an error in such order occasioning failure of justice, the Court of District Judge may, revise such order and, make such order as it thinks fit [...]
  22. INTRACO (BD) Joint Venture v the Government of the People’s Republic of Bangladesh (Arbitration Applications No. 9 & 10 of 2013); Roads and Highways Department v Hanil Engineering Construction Company Limited and another (Arbitration Application No. 4 of 2012); Roads and Highways Department v Najir Basic Joint Venture (Bangladesh) Limited and others (Arbitration Application No. 20 of 2012).
  23. Egyptian Fertilizer case, paragraph 11.
  24. Egyptian Fertilizer case, paragraph 13.
  25. Egyptian Fertilizer case, paragraph 15.
  26. Bangladesh Law Commission, ‘Report on the Proposal for Amendment of the Arbitration Act, 2001, for Including a Provision Relating to Interim Measures by Court’ (8 January 2003) Available at www.lawcommissionbangladesh.org/reports/55.pdf [Accessed 10 January 2013].
  27. J Lew, L Mistelis et al, ‘Comparative International Commercial Arbitration’, (London: Kluwer Law International, 2003) at paras.23–113
  28. Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc. , Civil Appeal No.7019 of 2005.
  29. Multi-Code Electronics Industries (M) Sdn Bhd and Another v Toh Chun Toh Gordon and Others [2009] 1 SLR 1000.

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